Credit Suisse Sells Its First Public Tier 1 Contingent Bonds

Credit Suisse Group AG (CSGN), the second-biggest Swiss bank, sold its first public Tier 1 contingent capital notes, bonds that will be written off if the lender’s capital ratios drop below a preset level.

The Zurich-based bank issued 250 million Swiss francs ($272 million) of undated notes paying a coupon of 6 percent, according to a person familiar with the matter, who asked not to be identified because the terms aren’t set. The Tier 1 bonds, the most junior layer of debt capital, will be written off rather than convert to equity if the bank’s capital ratios fall below 5.125 percent, the person said.

Switzerland, with 8 million inhabitants, hosts two of the world’s biggest banks. It’s seeking to protect its lenders against future crises by tightening capital requirements after UBS AG had to be rescued in 2008. Credit Suisse’s more-senior Tier 2 contingent bonds due August 2023 it sold earlier this month carried a higher coupon of 6.5 percent, according to data compiled by Bloomberg.

“The coupon on the latest deal reflects just how much more favorable the Swiss franc market is,” said Simon Adamson, an analyst at CreditSights Inc. in London. “That’s well below what it would have to pay on an international issue.”

Credit Suisse, which sold the notes to help it achieve a capital ratio of 19 percent by 2019, has the option of repaying the debt after five years, the person said. As a Tier 1 instrument, the borrower can suspend coupon payments without defaulting and the missed coupons don’t have to be made up when payments restart.

Private Placement

The notes are expected to be rated BB+, the highest speculative grade, at Fitch Ratings, the person said. The issuer is rated A, five steps above junk.

The August 2023 Tier 2 bonds, whose coupon payments are obligatory, will be written off if Credit Suisse’s capital ratios fall below 5 percent, according to data compiled by Bloomberg. That compares with a trigger of 5.125 percent for today’s deal, making it more susceptible to losses.

The bank agreed to privately issue the equivalent of 6 billion Swiss francs of Tier 1 contingent capital notes denominated in francs and U.S. dollars, according to an e-mailed statement in February 2011. The buyers were Qatar Holding LLC and The Olayan Group.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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